ASU Economist Talks Inflation & Interest rates
July 12, 2022
A long time ago, the Federal Reserve figured out that a good method for cooling down the economy and slowing inflation was to raise the interest rate. Unfortunately, when a supply shortage is one of the primary causes of inflation, raising rates does not work well.
On Arizona Horizon, we discussed some of the issues the economy is facing with Professor Dale Rogers with ASU’s W. P. Carey School of Business.
Who is Dale Rogers?
Rodgers is the ON Semiconductor Professor of Business at the Supply Chain Management department at Arizona State University. He is also the director of the Frontier Economics Logistic Lab and the co-director of the Internet Edge Supply Chain Lab at ASU. He is the principal investigator of the USAID-funded $15 million CARISCA Project at Kwame Nkrumah University of Science and Technology in Kumasi, Ghana. Dale is the Director of Global Projects for ILOS – Instituto de Logística e Supply Chain in Rio de Janeiro, Brazil.
What is Causing High Inflation?
Inflation is continuing to surge throughout the economy. We’ve seen some record high gas prices as well as skyrocketing food prices. Inflation rose 9.1% in June 2022. That begs the question: What is causing such high inflation.
“A lot of the inflation is supply inflation. In fact, probably over half of the inflation we are seeing right now is based on supply shortages and also the crazy tariffs that were put on back in 2018 by the previous administration,” said Rogers. “This is driven by supply issues; fuel one of the biggest things with inflation. During the pandemic, we took about a million barrels a day offline; that really hasn’t come back yet.”
Will Lowering Interest Rates Help?
With inflation starting to get out of hand with such high prices, would lowering interest rates help at all? If you remember, interest rates were also lowered during the time of the pandemic, which drew in a lot of attention if it was the right move.
“That’s kind of what they did during the pandemic and a lot of people questioned should they have done that,” said Rogers. He went onto continue what needs to be done, “Really, what we have to do is get the supply side fixed. We really need to fix those supply chains; we need to fix routes into the U.S. and that whole spiderweb network.”
Demand and Supply Driven Issues
As we move forward with inflation, there has also been issues surrounding the demand driven supply network.
“Supply driven doesn’t really work with the traditional fed tool, which is raising or lowering the interest rate. That works on demand side inflation, but it doesn’t really help us get more fuel, or more food or all the stuff that we are paying more for,” said Rogers.”By raising interest rates, they could put us into a recession where the cure would be worse than the disease.”
If you want more information on Dale Rogers, click here.